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tv   After Words  CSPAN  November 5, 2016 10:00pm-11:01pm EDT

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type of intervention the conservative think-tank and on the way that american uses its military to manage the world. the group that provided the rationale the project for the new american century is a small arm of the american enterprise institute one of the most conservative think tanks. now the iraq invasion was 2003 but as early as 1998 the people were writing letters calling for the removal of saddam hussein. condense saying let's get rid of some of hussain?
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doldrums felt, paul will fold its, richard perle, then goes to extend the influence around the of world. but now first president clinton ignored the letter. this is nine days after the 9/11 attack. to president bush who's now in the white house to repeat the call of regime change in iraq. and those assigned 1998 letter are in the government.
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>> host: congratulations on your new book a provocative title. what happened to inequality did pass to decades quicks. >> guest: there is less increase a lot of that seems to occur in the '80s and '90s but generally that the rich getting richer while the middle working-class wages have stagnated.
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and to speak to that issue one of the most important is that 1 percent that is possible. >> some of the commentators say did the back of "the great gatsby" era starting back in the '70s with rivals do you agree quick. >> to measure nontaxable income and social security to have a big impact with those two career families those that are not working unless there are other reasons but to go back to pass through the era where they should have been to be
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industrializing but perhaps we are not at that level but they went from the economy that required a lot of investment and savings. with that information's based knowledge base information driven economy. with almost no investors at all. so to share the value of their innovation. and then to get quite wealthy. >> en the reasons for slow
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wage growth. that has been a tough time for a lot of workers. >> guest: did teh's lead to the controversy of the book that manufacturing engineer of ford motor company that grew up in the midwest and in my whole life in manufacturing we tell the zero workers don't worry they are coming to put you back to work there is capital sitting on the sidelines with the interest rate is zero. back up to where it is to say those id skilled for those they remain behind. this sow are the 40 million foreign-born.
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>> end to have that to put them back to work so then to so that middle-class working wage. that is to the rest of the economy. >> vice borne negative racing highlight any quality and slow wage growth that is the thing to do with people at the bottom of the economic ladder. >> so that 50 year-old worker with that endeavor can actually be a cartoon be retrained. so we need to be thoughtful but one of the chief concerns to be highly
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motivated like a good goal or silicon valley. in through successful risk-taking with better on-the-job training with the network of experts in silicon valley. just like those who will be very familiar with the technology in community that could be difficult for somebody on the outside like elon musk that magnifies the productivity of the most talented american workers. france then germany is three times faster.
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with those $1 billion ipo over the last year we created $250 billion. with that amount of innovation and then with those benefits but what amazes me be do that with 25 percent of the workforce 40% of scandinavia almost 50 percent of japan. to be better trained and more highly motivated. in the way that the rest of the world has not. i worry when you slow that down.
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and then catching up to where they were. >> so to enact a more progressive policy with capital gains and estate tax cheating steve jobs would not create the i found? >> with the new individual base they did not expect to be a multi billionaire. clearly there did not need that type of money to motivate. with the individual you lose the bigger picture. with those failures randomly
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but if you don't have silicon valley that training that went in with on-the-job training and risk-taking adult think you'd have that bubble up. but there is the enormous increase of entrepreneurial risk-taking that they have chased after those gains. and with large to pools of talented people. so where the payoffs are much higher. that is small in comparison to what amplifies that risk taking but if i am sitting in a cafe in greece what
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chance do i have? so to have a network of friends to do the finance and then with a much higher probability of succeeding. and then to be more inclined. it is a 1.difference with the europe tax rate. it does and now that institutional capability or that roadmap. >> if you save the energy of silicon valley? why not? >> both synergies were created through the successful risk-taking.
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so we always have the option to distribute more in the short run. so look at the difference between the income levels of united states they are getting bigger and bigger with the ability for them to catch up now that they have fallen behind now of '07 major shift of technology besides really what we are headed towards with the internet. we do have a big competitive the vantage today. >> i will go through each myth and you can explain. >> that is higher in silicon valley.
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>> but they have to believe that they matter a lot to i greet. to say he will do what he wanted to do anyway. warren buffett so had you convince warren buffett put. >> besides those tax codes idol date we have the definitive evidence what is that elasticity website think all economists say we don't know is the answer ultimately e decide for yourself the difference between what is happening in the u.s. and the early 1990's how north korea and
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south korea russia of verses europe and taiwan and hong kong and old china vs. new china. so it probably isn't of a tax rate so overtime with those capabilities that is why it is a mistake to see what would happen to bill gates? that is and really relevant what about silicon valley to slow the gradual accumulation with those capabilities show me where the tax rate is high.
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>> kovach to the '50s television has created enormous mass markets turning back with two decades of the great depression me have fallen behind. there were numerous reasons a lot of agriculture into manufacturing. >> but nobody pays 90 percent. but corporate taxes were lower than. that was very circumstantial.
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going back because of the capital-intensive the large corporations general motors and kodak are very capital intensive. they plan to transfer through you have more restaurants we happen to be in the information intensive area. with more of investment phillip said the large corporation has a difficult time innovating in succeeding for such a large pool. >> but we could come to another era where retry to use stop global warming and
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it all could change with a completely different dynamic in what we live in today on japan doors without capital. >> success is largely inert? timothy argument the 1% has been their success by negotiating a variously that there has been a huge rise in crony capitalism. so we all agree there is cronyism. b.c. this in sports looking at that misdemeanor level. but there will be a lot but what we see with those rising incomes. but then to account for
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this. with other high wage economies with acceleration growth. >> that is relative. it is hard if you are running a marathon had to do that relative to everybody else? that is a better gauge of what is happening. so turnover of the status quo. that is an indication. bc turnover looking at the cutting edge of technology, the only one that has even held onto the market value is microsoft. the rest is a whole new set of competitors at that level with the "forbes"
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47580 percent are self-made or business owners. looking at the difference of c0 pay and worker pay for those that pay all levels of that is the indication look at us dispersion of returns and manufacturing you will see less dispersion that indicates competitiveness so where is the evidence on the of the side? other then rising in town inequality.
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>> most money have made the money themselves. the harder question looking at the social value puc robert downey, jr. making a great movie what about the finance industry? we didn't tag of occupy hollywood there was wall street but had you justify from the hedge fund managers >> id did is a little more complicated but bush talks about wall street and finance and general. i believe the trade deficit that we have very little use in this economy with those savings of slow-growth highly unemployment they had
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to inflate -- innovate. nobody was working on that problem except wall street. a figure out securitized seen mortgages a created a syndication and they'd found a logical risktaker it does put the money to work to say i don't know if you noticed you could pull the money out and spend the money will never get it again. you basically want the lottery then you can facilitate that with no money down, no risk to you. >> it didn't work out so well because banking with fat equilibrium everybody
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rushing to get their money at the bank but my point to come up with the innovation they thought that was a really good idea but that innovation was not so great. they are earning a lot less as a result. >> bain capital we would fire people at any hint of inside information but retook action not even real inside information's but they think we had unique insights of what makes a business successful. not only in the leveraged buyout that public investment to make better
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returns on average as a result one of those in is if you have a higher bracket share the value of the future investment opportunity is more valuable than the market recognizes you want to invest a lot more money so you can capture that value and then use that publicly and privately. do i think they have inside trading? sure. but it is hard to account for everybody we have seen. >> those are in short supply >> the most controversial pieces with that stagnation argument from larry summers i say silicon valley is on
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fire. >> they don't because i think there is the difference with risk averse savings as a result of the trade deficit and don't think it has much need. i look at them to say is shortage of investment opportunities with the types of savings. i also agree with the vendor maquis not all the shortage of the surplus to drive the interest-rate down at zero but if you look at silicon valley is on fire. to get uh talent that they need to fight off that disruption to find alternatives to keep the business profitable in the long run. if you look at intangible investments you see nothing
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except right through the recession. e.e.o.c. evidence of the falloff. >> teasing productivity growth will start like. >> a thing can get complicated for a lot of reasons but today it is like a lottery. you will either scale up or you will fail. that is highly attractive to those who don't have money the old way they will get rich. to put that into wall street not putting it into those risky bets that we could be over investing there are all sorts of productivity gains
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and then over here they play the lottery they have overplayed it now who knows? it may come up with the conscience but then if you put did the trade deficits to supervise this which i say is talent of risk-taking as you bump up against then you have properly trained talent. >> so with the productivity with those regulations of banking people that were taking rask they would be scared to deaf so if people
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take an athlete and seabed 10 years later they figure out where they can take a rest nobody else is taking them. >> to hollow out of middle-class? they are struggling. >> i hired to some consensus experts and they say what is the and, distribution? so there is no real changes in the distribution. maybe 1% then you see the of board tier of the median as you study for example, to use absolute numbers but
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seven of those 11 points came from the in, moving down look at those from the hispanic immigrants what happens to everybody else? not such a of a bad trade-off those of for rum upward movements. >> mobility has declined. >> we do know that steady is the landmark study at this point in time is mobility for the united states. but more interestingly if you look at scandinavia with domestically distributed in come, except for the bottom 20% it was almost identical.
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if you look at african-american mobility across all races and demographics. looking at the bottom 20% the portion that is african-american and day have the effects of civil motherhood. if you look at the income levels mobility looks similar to the rest. >> so to say there is the reason to see mobility? >> moving into the backs where what policies might do about the situation.
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the one this call the race between education and technology. on the aside the of the ledger so their conclusion we need to push forward with the years of schooling for the typical american. >> the cure book has some things to say about education greg. >> yes. the great book which is great by the way. it does not segregate from the of 1%. then you see the growth is in the 0.1%. if you look at the effects of the education to more broadly eliminate that as the books to be because that
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is the inequality we have seen. but then if you just get to the success could we find off-the-shelf technology to make education more successful. >> glut that their white american verses europeans is virtually a identical. first-generation immigrants.
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>> guest: do appear to work dependent of selection bias which would be, you know, obviously the parents who want that for their children are going to get past the problem of a lottery just like any parent who's trying to send their kid to a private school or difficult to get into college. you're not going to just apply to one. the student population's going to be overrepresented by conscientious parents. but josh and people have worked hard to sort that out. charter schools do seem to have an effect, the book calls for an expansion of that to meet the demand of parents. i think if you look at some of the chevy work, it suggests if we could fire the bottom 5% of incompetent teachers -- not that
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we're trying to blame the teacher for the success or failure of the american schools, i think most of them are fine. one of the things i call for in the book is a constitutional amendment. able to fire that bottom 5%. but other than that i don't think we go, oh, here are some off the shelf technology that we haven't implemented. all we need to do is spend a little bit more money and implement that and somehow our education system's going to get better. now, i think on the high end there's lots of things we can be doing. we know -- >> host: thank you. [laughter] >> guest: lots of students are not studying subjects that really are going to employ their fellow man. so i think there's a surplus of talent but a shortage of properly trained talent willing to take the entrepreneurial risk. they put their less fortunate fellow man into jobs that are more productive and higher paying. they're interested in doing other things than solving that problem.
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and that problem is satisfying the demands of customers relative to competitors. that is a strenuous, painful job that, yes, it pays highly, but it also, you know, gets you out of bed at six a.m. in the morning and keeps you in the office at 10:00 at night because you've taken on responsibilities, and those responsibilities weigh on your shoulders. which is not to say that the working man isn't working hard to put food on his table and to make ends meet. but i think you'd find there's a lot of talented people that really haven't accepted the moral responsibility. and one of the things the book tries to do is say that we should inculcate that group. the other thing to look at, talented students from low socioeconomic families, they don't graduate from college as successfully as the rich kids do. there may be reasons for that, because why were their parents poor in the first place? who knows? maybe there's reasons we can't solve. but i think we can be a lot more thoughtful about how to get those kids into the best possible schools and get them
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through those schools so we get them out the other end. because they're far more likely to feel the obligation of helping their community than a lot of the other kids. but i'm skeptical that we're going to have dramatic change in any reasonable time period, and we're bumping into some big problems like a lot of retiring baby boomers, and we need fast growth to solve that problem. i don't think it's going to get solved by thinking we're going to improve education enough in the short run to matter. >> host: some economists, most notably at the university of chicago, has argued for preschool especially for underprivileged kids. and president obama has argued for that as well. you said you're skeptical of that. >> guest: i've looked at all the research. i think if you really look at all the research -- and i've looked at metastudies of the research, i think it's -- you don't see very many examples where it's truly been successful. and it's not so simple that we just get the kid to preschool and do whatever we want and somehow that's going to have a dramatic effect. what you find in a lot of these
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studies is they do showfects through the fourth grade, bethe effect -- but the effects fall off by the 12th grade. it does have an effect on civic responsibility even though it might not improve test scores, but i worry about the hawthorne effect which is if you're singled out and i tell you you're special and i do all these things you're far more likely to feel special, but if i do it to everybody, you're not likely to feel special anymore. we should run a lot of experiments in preschool because i think we all believe that the brain is highly plastic the younger you are, there's lots of interesting things we might be able to do. we don't really know much about it yet other than to know it's probably a real opportunity. i don't think we know how to take advantage of that opportunity. so just to say let's throw money in and have everybody in daycare, the large scale experiments have not proven successful. >> host: we have to admit it's mixed. there's no definitive evidence
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on the impact of taxes on growth, but you're willing to sort of believe that lower tax rates at the top are good. there's mixed evidence about preschool and now you lean to the direction of being skeptical. >> guest: i would say that the evidence on taxes is more ambiguous because nobody can really hold at all constant -- >> host: exactly. so you should be less certain there. >> guest: but here i think it's -- there's very few really definitive successes in the daycare area. when you really dig into the hard core literature, aside -- there's a lot of propaganda in academics and in academic let church you have to short -- literature. you have to sort that out and get to the guys that are really rolling up their sleeves and trying to figure out what's going on, and i'd say it's not so mixed at that level, but different people can have different points of view. >> host: there's a book by thomas piketty, capital in the 20th century. like your book, it was on the bestseller list -- [laughter]
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talking about inequality, a very different point of view. he's argued a lot that there'd be a tendency toward greater inherited wealth going forward. he was worried about the concentration of wealth. and one of his policy proposals was a tax on wealth. hillary clinton hasn't proposed a tax on wealth, but she has proposed an increase in the estate tax. >> guest: yes. >> host: how do you feel about that proposal and pickty's arguments? >> guest: i believe there are two constraints to growth. one is our willingness and capacity to take risk, the other's properly trained talent, and the two are sort of two sides of the same coin because i may be able to take the risk if i have the supervision and talent to implement it, but i don't, so i don't take the risk. i think it's very difficult to accumulate equity that's willing to take risk versus people putting their money in the bank and saying i'll fund an investment as long as you're will to underwrite the risk. equity is precious, it comes from a lottery-like process, competitive advantages can be --
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i mean, competition can water it back down to zero. so when it arrives, we should treat it with the preciousness that it deserves as opposed to taking it for granted. i think it's a bad proposal to tax it, redistribute it and consume it when we're lucky enough to get it in the first place. i think there's, it's a lot of odd, i think everybody would agree -- everybody serious would agree -- odd economics in the book where somehow we generate high returns on investment despite the fact that nobody needs the investment anymore because we're not growing, and we don't have really any need for the investment. i don't think -- i think even paul klugman, brad delong, larry summers have been critical that there really is no underpinning. i think larry summers called it a misreading of the literature. and you look at the evidence that he puts forward about the 1%, i think he misstates the evidence in the book and that most of the evidence points to the fact that 70% of the wealth
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of the top .1% has come from self-made business founders, not from public company ceos negotiating with their cronies. i think another thing you look at is kaplan studies from the university of chicago that shows ceo pay hasn't outstripped private company ceo pay where the people sitting on the board of private companies own the business. so you're not negotiating with your cronies. the two growth rates have been very, very similar which is an indication that public company boards are not increasingly doing their job less and less effectively. if anything, we see faster turnover in ceo pay. i mean, ceo tenures have gottennen shorter over time. >> host: okay. so you're skeptical about education, you're skeptical about a wealth tax a la piketty. what would you do? [laughter] >> guest: one of the things i say is the status quo is this for a reason, so trying to disrupt it -- >> host: another question i had,
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is this -- [laughter] >> guest: we are in a much better world than we all are willing to admit. yeah, we've got problems to solve, but we're still a lot -- >> host: so the hat should read make america grateful again. [laughter] >> guest: i like that, that's good. one of the things i say is properly trained talent is a binding restraint, we should recruit more of it. i say there's 100 million full-time workers, the top 5% are five million workers, there's 77 billion people in the world. half of those, we don't know who they are. half are too young, too old, half have never going to move. 50 million, people should fear our immigration strategy at that level because we should be trying to capture their talent, bring it over here and fuse it together, put it into our institutions which magnify their productivity and the success of their risk taking way more than the institutions in their home companies -- countries. but if that's really what's
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driving growth and we could double it by bringing in another five million, i don't know if there's synergistic effects, maybe it gives you less than one plus one, but that, i think, is our best shot for growth. >> host: by the way, i think a lot of economists would agree with that. no economist that i know of argues against talented immigration. >> guest: another proposal i make in the book, if you really look at the tax numbers, the middle class pays in taxes about what they get back in government services in the year that they pay. so they're not contributing anything to their retirement really, and they're not helping the old people today, they're not helping the poor today. that's all being done by the top 20% when you really look. but i say, good, so why don't we do the following? zero the middle class tax rate and charge them the full cost of the government services that they're using, and instead of having upward -- >> host: how does that work? i mean, i use the roads, i use national defense, how do you charge me for that? >> guest: some of that's local,
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i'm really talking about federal -- >> host: well, national defense, say. >> guest: do you charge -- what i do in my calculation is i say ill do it proportionately the amount of income -- >> host: that's an income tax. >> guest: i think it is. i'm giving it more as a conceptual thing than as a limb take. -- limitation. you could give vouchers for health care subsidized people, there's lots of tough that you could do, but it's complicated. ultimately, the if you did have a person saying i'm not paying any taxes, i think two things would be happening. why do they cost so much? i could get it over here in the private sector for half the price. and i'm not so eager to have services that i have to pay for as opposed to free services, so so it would put downward pressure on government spending. and i think if the government spends the money, they con assume those resources. if the private sector spends it, i think the private sector's a more effective way to spend resources, and it would shift to
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the private sector. >> host: now, why don't we talk about another one of your ideas which is trade and the trade deficit. this is where i think you're probably in disagreement with most economists. so why don't you explain your view of why we should be so worried about the trade deficit. >> guest: well, i believe that it floods the united states -- ultimately, you have germany, china, previously japan, mexico probably for corporate savings but slightly different, but let's just look at germany. they have an enormous savings level in china. we buy goods for them, they loan us back the money. and the money's very risk averse. they buy, t-bills. the money sitting in the banking system unused with a zero interest rate. >> host: that becomes available for investors. >> guest: i said there's not great investment opportunities for risk averse savings. it doesn't come back as equity, and it's not as though -- and people make this argument -- just because they bought t-bill, the guys who were risk averse don't just start taking risk
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because somebody bought their t-bills, they say, bank, you find an equity person to put up accurate rag and i'm willing to fund the investment, but i'm perfectly happy to stuff my mattress with corn rather than put it into the system and take risk taking. i look at trade and say we're at 13% exports, 16.5% imports. okay. if we say the first hour of trade, creating a lot of value. the last hour, ought to be break even. 13 to 16.5 as a way to break even, you're probably awfully close to break even. but what happens at that level when we cross that point is we start giving up jobs unless we take the risk of putting risk averse savings to work. but my argument is that we are capacity constrained by our willingness to take risk, and the ed that the interest rate zero and the savings are sitting in the bank unused. >> host: okay. let's imagine that china is running this trade surplus and
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they weren't pieing t-bills -- buying t-bills, suppose they were buying equities with it? >> guest: i potentially could have a different view. they'd have to roll up -- >> host: well, the public equities support the venture guys. >> guest: yes, i agree. although i think there's a big, there's a big equity premium between the risk-free rate today and stocking market rate even though the pe ratios are high. the margins are at recession levels, one over the pe ratio minus the taxable rate, are getting to recession levels, and the liquidity premiums are high as well, liquidity meaning if i put it in the stock market, i could get it out tomorrow. if i build a factory, i won't get it back for 50 years. you really have to get people to take the equity and liquidity risks. it's not so simple that they just start buying equity in the stock market, but it would be a lot better than the t-bill, because then our risk averse savers, probably off on a
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tangent here, but, you know, we would have safe assets for the fearful people to buy instead of selling those to the chinese and these people put it in the bank, and it sits unused. i'm trying to sell -- and this is, i think, larry summers tried to sell the very same problem with his idea for infrastructure. and we would all agree that infrastructure spending's probably better than just redistribution in terms of future growth, but what he doesn't tell you is unless it increases government spending, then it's not borrowing the money that's sitting on the sidelines and putting it to use. folks have to increase in infrastructure and increase -- invest in infrastructure and increase government spending. projected at state and local included projected to grow nine points over the next 30 years as baby boomers retire. the debt is at 75% of gdp up from 35, it's projected to go to 140, and those projections are low because they assume we're going to drive the discretionary spending to zero which we're not going to do, okay? so the imbalance is even greater. do i think that spending more
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money through the government rather than the private sector is going to help us more in the long run? it's just hard to believe. but if someone said would you rather spend a dollar on infrastructure than some entitlement program for rich guys like me, i'd go, yeah, i'd rather spend it on infrastructure. but do i want to increase government spending? no. because my argument is again whether the government or the private sector spends it, either way, it consumes the resources, properly trained talent and our willingness to take risk. the private sector will dial back. that's the real crowding out. it's not a crowding out of savings which is the traditional way that economists think about it. there's no crowding out of savings. the interest rate's zero, the savings are sitting unused. >> host: let's talk about your background a little bit. [laughter] early in your life you were at bane capital. >> guest: yes. >> host: tell us what it is and how that experience influenced your view of how the economy works. >> guest: i'll go back two steps further. i was an engineer who spent a
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lot of time in the decision sciences which is quantitative economics, if you will. and then i spent a lot of time on the shop floor, and then i worked at bain consulting to a lot of large businesses, mainly industrial businesses before i went to bain capital. but i think bain capital had an insight which i described earlier which was that if you truly had a competitive advantage, the easiest one to buy is you're the largest competitor in your space. it opens up future investment opportunities which are more valuable than it would be if you're earning close to the cost of capital, you know, if you're really in the thick of competition and barely eke out more than what it costs to borrow money. and when you -- those opportunities are undervalued by the market even including lbo investors, and they're underinvested in. and if you buy them and invest in them, that can create an enormous amount of value. now, what held us back from just going to infellowshipty? the -- infinity? the amount of talent we could hire. we'd train and we'd teach them. first thing they'd do, go to the
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competitor, get paid more money. [laughter] so the costs of training these really talented guys is very, very expensive, because we get very few of them out of back end of the process. it's hard to get them to stay and continue to create value on our behalf. they go, i can just create that value on my own behalf. so i started to bump into the very things -- and the other thing i learned with ceos, you have to pay ceos a lot of money to take the risk. they take a lot less risk than you want them to take as an investor because they go disrupting the status quo is a very risky thing to do. the organization turns against me, and i have a hard time surviving. what i want to do is be the ceo for as long as i can possibly be. and the way to do that is to minimize risks in my career as opposed to what an investor wants them to do, which is to take a lot more risk in trying to improve the future, make those investments that might fail. those are all things that put their career in jeopardy. and if you pay them enough
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money, they will take those risks. but people, i believe -- what we've found is they underpay the management team, and then the management team has underperformance which they've been living in a long time. they've got a huge stream of investment opportunities, and they're underinformsing in them -- underinvesting in them. that doesn't work, that doesn't make any sense. >> host: i want to ask you about one arcane tax issue which is in the news a lot, carried interest. >> guest: yes. >> host: can you for the listener define what carried interest is, what that means, and tell us your view of whether it really is a loophole as a lot of people have suggested and whether it should be fixed. >> guest: so, i don't think it's a loophole, is the answer. but people can disagree. carried interest is we're investing $100, and some investor's putting it up. and then they come to us, the general partner in this, and say we'll give you 5% or 20% or whatever the case may be, and that's your compensation for
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having managed the investment -- >> host: it's competition for your time. >> guest: competition for your time. >> host: so why is it not taxed like other compensation? >> guest: because you're only going to earn it -- bear with me for a second, but you're only to going to earn it if the investment increases in value. you're not getting 5% of the 100, you're getting 5% of everything above the 100. so very often -- and the average is going to be close to zero for many, many investments because you haven't created much value. but i think the tax as an investor to get the carried interest. tax law's very simple. it says somebody's going to pay this tax. i don't care who pays it, okay? so if it was an investor who would have captured the capital gain and they would have paid the 20% -- and bear with me for a second -- if they give 5% to you, you're going to pay the 20% on that 5%. the reason why in corporations where corporate managers don't get the capital gains treatment
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on their options is because of double taxation. the company takes an ordinary income deduction. they say, that's fine, but if you're taking an ordinary income deduction, this is the irs, somebody else is going to pay the 50% tax, 35% federal tax, that that deduction reduced my tax revenue by. so they simply just look through it all and say what would my tax revenue have been, and i'm going to collect it. in the case of it was really a capital gain. so what we could do is say -- and we do this all the time which is just to sell to our ira, to sell to our family trust, whatever, we have to get a valuation of what we think the options are worth. they use a black shoals model, traditional way to calculate the value, and then they say, okay, that's really the value that they've got. now, what the irs -- >> host: this may be getting too much in the weeds. >> guest: it could be. but that's a nickel. almost all the money you see in my bank account didn't come from the options that they gave me, it came from the value that was
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created, the capital gains that were created not only for me, but for investors. >> host: i think for a lot of people it looks like you're being compensated for your time, and you're paying a lower tax rate than ordinary worker -- >> guest: right, yeah. >> host: and that just seems fundamentally unfair. >> guest: i think there's a piece of it which is that, and i agree with you. that's the value of the option. i'm going to give you an option on ibm stock, you immediately look up the value in the "wall street journal," thank you, that's what i got paid. >> host: it should be ordinary -- >> guest: it's a nickel. >> host: so that means some reform. >> guest: what you really see is those options, we were very clever about which ones we bought, which ones we invested in, and we were able to make those options worth a lot of money, and those options are treated as capital gains in the tax code. we could all make an argument, and i do in the book, that we should lower the corporate tax and raise the capital gains rate because part of the reason why the capital gains rate is low is
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because of the double taxation of corporate taxes which maybe doesn't apply in, well, does apply because we're corporations, and the profits are getting taxed in lbos. >> host: we're having this discussion one month before the presidential election so, obviously, a lot of politics in the air, and we're here in washington, d.c., especially a political place. when you look around at politicians either running for national office or local offices or tate or senate -- state or senate offices, are there certain politicians that are saying the right things and certain ones saying particularly the wrong things? [laughter] >> guest: well, let's go to the two presidential candidates. >> host: okay. >> guest: from my perspective, i would have a difficult time voting for hillary clinton because i believe that increasing spending $200 billion a year over the next ten years at a time when we're at 36% of gdp total spending and there's no end in sight to the increases from retiring baby boomers, that seems like a prescription for very low growth to me. and the marginal tax rate, 43%
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federal plus states getting it up to 50%, you know, i don't think that's wise economic policy. i think in the case of donald trump, we'd all kind of scratch our head on behavior that's hard to understand and try to weigh that against, you know, do you want to take that risk versus what i view as slower growth. you know, i think you're getting outside of the realm of economics. so i'm -- hard for me to make that call publicly. you know, i can make that call privately. i don't know how to use economics to make that call -- >> host: what do you think about donald trump's of renegotiating trade agreements? >> guest: so i think it's a real mistake to tax trade. i think trade deficits are a problem. i think you cannot make for $20 what you can buy for $2 and think you're going to be competitive in the long run. i think on donald trump's fiscal policy, basically guns, we're going to grow the military, butter, we're going to grow the entitlements and tax cuts, you know, with debt at 75% of gdp --
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>> host: even after -- >> guest: right. i can't support that. >> host: okay. i read your book over the summer, and i read right next to it a book called success and welcome. >> guest: yes. >> host: and i came away thinking that one big difference in the world view between you and bob frank was that you view the world as fairly meritocratic, and he views outcomes as largely based on luck. >> guest: me too. >> host: based on luck? >> guest: yeah, sure. >> host: but you say that success is largely earned. >> guest: well, i think 99% of my luck was behind me the day i was born, and then i just got lucky from there. it's true i went to engineering school, i studied math, i went to business school, i was the student council president, i thought a lot about leadership, i went off to bain consulting and learned a lot about business, so i did train myself in such, and i did take risks along the way. i went, oh, i'm not really going
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to get rich at ford motor company, i went to wall street and went that's not really going to be my thing either. ultimately, you know, i lucked out. mitt hired me, i told him i'd work for free. it doesn't really matter at the individual level, there's just a pool of people who are trying to get lucky. somebody in there's going to get lucky. what you need is the pool of people who are trying to get lucky, many of whom aren't even trying and they'll still get lucky, but if you don't have that pool which europe doesn't have are, japan doesn't have, you don't get the growth in the institutional capabilities which ultimately drive growth in the economy. what's happening at the individual level, it doesn't really matter -- it will -- >> host: unlucky. if you were lucky, what should you do for the unlucky? >> guest: you need 99 unlucky people to get 1 lucky person. i don't think we can reward the unlucky because i think where that will lead is a whole bunch of art history majors who aren't trying to get lucky and say i'm going to get rewarded anyway.
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you have to go, no, you're a harvard student, you have a moral obligation to put that fall lent to work on behalf of your fellow man. another way to do it is through the satisfying the demands of customers, and they call them demands for a reason, you know? because the customers are demanding, and it's hard to satisfy them, and it's painful to satisfy them. and so you want people to get the training, to be motivated, to take the risk and, ultimately, they're going to fail. but we can't -- how are we going to go back and adjudicate, oh, you really had a good idea but i'm sorry it didn't work. oh, over here, mark zuckerberg, you had the same idea. and, yeah, maybe you had a better team because somehow you had that capability to pull that team together, maybe it was just random. you succeeded, he didn't. we're going to split it up, divide it between the two of you. it's nice in theory, but it can't possibly work in practice in the way it has worked for the united states. >> host: yeah.
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i can certainly understand that. well, let me say that i feel like i have been very lucky to have had this opportunity to talk to you. [laughter] for the past hour. so thank you very much. and congratulations on what is a really terrific book. i don't agree with all of it, but i found absolutely all of it provocative and worth reading. thank you so much. >> guest: thank you. >> c-span, where history unfolds daily. in 1979 c-span was created as a public service by america's cable television companies and is brought to you today by your cable or satellite provider. >> here's a look at some upcoming book fairs and festivals happening around the country. on wednesday, november 16th, we're in new york for the 2016 national book awards. then friday, novem

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